Federal Court Decision on Employer’s Failure to Pay Annual Leave Entitlements
The
Federal Court of Australia recently ruled on a case involving an employer’s
failure to pay a worker’s accrued annual leave entitlements upon termination,
underscoring the importance of compliance with the Fair Work Act 2009 (Cth) and
the severe repercussions of non-compliance.
Case
Background
The case focused on the
worker’s claims that the employer had dismissed him for exercising his
“workplace rights,” imposed unreasonable working hours, and failed to pay his
accrued entitlements upon termination. The court found the employer in breach
of section 90(2) of the Fair Work Act for not paying the worker the amount
equivalent to his accrued but untaken annual leave when his employment ended on
December 9, 2021. The owed amount of $8,022.82 was paid only on March 30, 2022,
nearly three months after the termination.
Seriousness
of Breaching the NES
The court emphasized the
seriousness of breaching the National Employment Standards (NES), stating that
“any breach of the NES is objectively serious.” Section 90(2) is designed to
prevent employers from avoiding their obligation to provide employees with
their entitlements upon termination.
Penalty
Assessment
In determining the penalty, the
court considered various factors including the nature of the breach, the extent
of the loss or damage, and the size of the employer. The worker argued for a
penalty of 40–55% of the maximum, citing the loss suffered and the need for
deterrence. The employer sought a lower penalty, citing the chief operating
officer’s unfamiliarity with Australian law, the worker’s modest loss, and the
employer’s contrition and lack of prior violations.
The court noted that deliberate
contraventions include actions taken with knowledge of the facts leading to the
breach, as well as factors like recklessness or negligence.
Balancing
the Factors
While the court acknowledged
the employer’s ignorance of Australian law, it also recognized the steps taken
to rectify the underpayment and the employer’s early admission of the
contravention. The chief operating officer had apologized to the worker, and
the court did not question the sincerity of the apology.
Need
for Deterrence
The court stressed the
importance of both specific and general deterrence, stating, “a clear message
needs to be sent to [the employer] and the community that ignorance (including
mistaken belief) is no excuse.” Employers must understand the law and seek
legal advice if uncertain about entitlements.
Court’s
Order
The court ordered the employer
to pay the worker $17,000, representing approximately 25% of the maximum
penalty.
Key
Takeaways
– **Compliance with the Fair
Work Act**: Essential to avoid significant penalties and maintain employee
trust.
– **Ignorance is No Excuse**:
Employers must be proactive in understanding and complying with legal
requirements.
– **Deterrence**: The court
aims to deter both specific and general non-compliance through substantial
penalties.
This case underscores the
importance of rigorous adherence to employment laws and the severe consequences
of non-compliance. It highlights the need for employers to stay informed and
seek guidance to ensure compliance with legal obligations.
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